Obama challenges Wall St. myths with Treasury nod

Commentary: Lew looks good for what he’s not

WASHINGTON (MarketWatch) — Jacob Lew, who President Barack Obama is expected to nominate as Treasury secretary later today, may be a great choice not only for his demonstrated mastery of budget matters but also because of all the things he is not.

First and foremost, he is not Timothy Geithner, the outgoing secretary whose unwavering favoritism toward big banks in the wake of the financial crisis led the Obama administration to badly fumble efforts to restore the housing industry and to ease the pain caused to millions of homeowners.

President Barack Obama and White House Chief of Staff Jack Lew, who’s expected to be tapped for Treasury secretary

As a result, we have a largely unreformed banking industry with greater concentration than ever and a much slower economic recovery than we might have had. Whatever credit Geithner gets for staving off financial collapse by bailing out the banks must be balanced with this debit.

Second, Lew never worked at Goldman Sachs. Even though he had a brief stint at Citigroup in between his numerous positions in public service, he is not a creature of Wall Street.

Historians may well conclude that the two recent Treasury secretaries from Goldman Sachs, Robert Rubin and Henry Paulson, bear much of the blame for a financial services industry that went rogue and caused the worst financial crisis in generations.

There is a myth that Wall Streeters make the best Treasury secretaries because they can talk the talk. Not only do Rubin and Paulson provide evidence to the contrary, but some of the most effective occupants of the post in recent history — such as John Connally or Lloyd Bentsen or James Baker (all, coincidentally, Texans) — had no experience in Wall Street or even any demonstrated economic expertise.

In fact, there is no evident formula for what makes a good Treasury secretary. Two of the best, Baker and George Shultz, both of whom occupied several cabinet positions, showed that people who in general operate effectively in a political environment will make good heads of Treasury.

Lew has also been versatile, serving as budget director under two presidents, as White House chief of staff, and in other government posts. Admittedly, unlike Baker or Shultz, the modest Lew resembles more of a utility infielder than an all-star.

Third, Lew is a Democrat, not a Republican. While it is necessary to negotiate across the aisle, there is no need for a member of a Democratic administration to join the other camp.

Geithner, for instance, grew up as a Republican and only switched his political affiliation to independent when he had opportunities to advance at Treasury in the Clinton administration. His instinctive actions in office have been consistently reflected that background.

Lew, on the other hand, worked on Eugene McCarthy’s presidential campaign in 1968 (yes, he was 12) and studied as an undergraduate at Carleton College under Paul Wellstone, who went on to become a senator for Minnesota and one of the most progressive members of Congress until his premature death in a plane crash in 2002.

In his early career on Capitol Hill, Lew worked for Tip O’Neill, the former speaker of the House who was a quintessentially partisan political animal but who struck some of the biggest bipartisan deals in Congress.

Fourth, Lew is not Erskine Bowles, a deficit hawk and former Wall Streeter occasionally mentioned as a candidate for the post, or Roger Altman or one of the other Wall Street insiders whose names have surfaced as possible nominees.

Aside from all that, at a time when Washington for better or worse is preoccupied with the deficit and rising healthcare costs are the main driver of that deficit, Lew seems to be the right person at the right time.

By all accounts, he has an unparalleled understanding of the arcane machinery of government spending and how it interacts with the private sector, especially in the healthcare industry. One of Lew’s most prominent achievements in Washington was his work on the Balanced Budget Act of 1997, which included significant cuts in Medicare reimbursements to providers.

So while he would perhaps not have been the best choice for Treasury secretary in 2008 in the wake of the global financial crisis, he seems to be the best man for the task at hand.

Not least, he has worked closely with the president as chief of staff and has his confidence. He is Obama’s man and will loyally help shape administration policy and follow it without keeping an eye out for a cushy Wall Street job after he leaves the post.

This kind of loyalty is not something Obama could count on from some wealthy Wall Street banker seeking to cap his own career with the Treasury post.

Lew’s nomination shows that the president has dialed back his team-of-rivals approach to the cabinet. Rather than make a splashy choice for Treasury, Obama has opted for a seasoned government veteran who can help him get the job done.

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